Penn National Gaming “presents an opportunity”. The stock gets an upgrade.

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Customers play slot machines at the Tropicana Las Vegas.

Ethan Miller/Getty Images

Shares of


Penn National Gaming

were skyrocketing on Monday after the gambling and esports company received an upgrade from Morgan Stanley.

Morgan Stanley’s Thomas Allen thinks Penn National Gaming (ticker:


PENN

) has an attractive valuation, which prompted it to upgrade its rating on the stock to overweight by equal weight. He lowered his price target to $51 from $55.

Penn stock rose 3.4% to $37.79 on Monday. The shares have lost 27% this year, which Allen attributed to mixed results and declining market share in key states. The recent underperformance “presents an opportunity,” Allen wrote on Monday.

For one thing, the company has a unique customer acquisition advantage over its peers. In addition to a legacy database of over 25 million casino players, Penn has popular online platforms like Barstool Sports and theScore that can help gain online betting market share.

Additionally, Penn’s first-quarter performance so far indicates that customers have been resilient, even as macro trends have raised consumer health concerns. Recent casino openings in Pennsylvania have exceeded Allen’s revenue forecast, leading him to believe the company is in a good position to exceed expectations.

“We see PENN’s U.S. business generating breakeven earnings this year, well ahead of other major U.S. competitors who stand to benefit from more credit in a rising interest rate environment,” he wrote. .

Penn could also continue to gain traction in Canada, Allen added. Recent analysis suggests the company leads the market in app downloads and its performance in the Canadian market may be undervalued by investors, he wrote.

Write to Sabrina Escobar at [email protected]

Lance B. Holton